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Above average monsoons brightens Kharif prospects, conducive for more accommodation by RBI: Report

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An above average and widespread distribution of monsoon has brightened the prospects for Kharif output this year. This in turn could help rein in food inflation and create room for further monetary easing for the central bank in the coming months, according to ratings firm Crisil

Early onset and good distribution of the south-west monsoon has paved the way for robust kharif output, raising hopes in hinterland. As on August 21, 2020, rains were 7% above the long-period average. Good spatial and temporal distribution has prompted sowing across crops in most states. Crisil said.

“We expect the current inflationary pressure to come off in the second half as food inflation is expected to ease and a favourable base effect would kick in” said D K Joshi, chief economist at Crisil. “Given MPC’s continued accommodative stance, we believe, if inflation trajectory does follow the expected path, a rate cut can be expected in the October policy as the economy”

But one assumption is that the pandemic does not disrupt food supplies the way it happened in April and May.

Crisil Research expects a 2-3% rise in sown area on-year at 109 million hectares for kharif season 2020. The area under paddy cultivation is set to increase because of both rains and reverse migration of labour to the eastern and southern states. Besides, Crisil, many other economists including those at Bank of America and Barclays among others have predicted that a bumper farm sector output this year. Many economists have forecast that agri-sector could be the only sector to post a perceptible growth and save the economy from steep contraction.

Effective implementation of central and state government schemes should further support farmer incomes. However, the spread of the pandemic in rural India (districts w ith more than 60% rural population) remains the key monitorable. That’s because the rural share of Covid-19 cases, w hich w as hovering around 20% in June 2020, has spiked to 45 per cent.

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